Module 7 Flashcards
Approved securities and eligible markets
At least 90% of securities must be in approved securities
Diversification Rules - Retail UCITS
- Retail UCITS Fund must not hold more than 10% shares in any one company, only in four separate shareholdings i.e. 40%
- Fund must have a minimum of 16, most usually hold between 50 to 100
- Replicating tracker can hold up to 20% of the value of the fund in the shares in one company, when justified may be 35%
- Must not hold more than 20% of securities or money market instruments issued by the same group
- Can hold up to 10% of the funds value in unapproved (unlisted) securities and up to 20% can be in units of another collective investment scheme
- Hold warrants without limits
- Not hold more than 20% in cash
Borrowing - Retail UK UCITS, non retail UK UCITS and QIS(Qualified investor scheme)
Retail UK UCITS - Borrow/Gear up 10% on a temporary basis
Non retail UK UCITS - Borrow/Gear up 10% on a permanent basis
QIS (Qualified investor scheme) - Borrow up to 100% of the NAV
Uni Trusts
- Managers and Trustees
- Registration
3.
Bid - Offer Spread
Offer price = investor buying at highest price
bid = investor sells back at lowest price
Includes dealing costs and initial charges
Usually in range of 5-7% however
- No load index trackers have a spread usually less than 1%
- Smaller companies and emerging markets may have spread of 10%
Forward or Historic Pricing
Forward = price to be calculated at next valuation point Historic = price to be calculated using last valuation point
OEIC
Established by Companies Act or Legislation
How does it differ to Unit Trusts?
Valued at
Dilution Levy
Advantages
Legislation - Allows them to share capital that can expand and contract to meet investor requirements
Differs to Unit Trusts
- Self contained company, its now documents and holds annual meetings
- It can stand alone, under an umbrella with number of sub funds each with own objective
- Offers shares rather than units, different share classes may be issued with different charging structures
- However there is a limit on borrowing like the unit trust, which is 10% of the fund
Valued at mid market price
Dilution Levy is paid to the OEIC to cover dealing costs and spread between buying and selling, applied if there is large amount of inflows and outflows
Advantages:
- Multiple share classes
- Allows management groups to offer umbrella funds
Multi Manager Product
- Fund of funds
- Manager of managers funds
Fettered or unfettered
- Fund of funds - invests directly into funds managed by other managers, no CGT liability
- Manager of managers funds - appoint specialist investment managers
Fettered: Only invests in funds run by the same management group
Unfettered: Not obliged to invest in internal funds
Offshore Bonds
Features
Reporting vs Non Reporting Taxation
Automatic Exchange of Information (AEOI)
- Established outside of the UK, usually in low tax areas
- Must be recognised by FCA
- Fund must be recognised by the FSMA 2000
Reporting
- Dividends and interest are treated in the same way as UK based funds
- Capital Gains is subject to the usual CGT Rate
- Must report to HMRC
Non Reporting
- Usually roll up funds, income is accumulated and no dividends are paid
- Capital Gains is subject to income tax at 20%, 40% and 45%
- Those who are not UK Residents income and gains will be free of UK tax
- Non domiciled investors gain inheritance tax benefits by investing offshore
AEOI - Exchange of information between tax authorities to help stop tax avoidance and evasion
Investment Trusts
What can they invest in?
How do they work?
Net Asset Value
Premium and Discount
Controlled under companies act
CGT
What can they invest in?
- Invest in anytime of company
- provide venture capital to new firms or firms that want to expand
- Invest in any country in the world
How do they work?
- Issue a fixed number of shares
- Regulated by company law
- As public limited companies they can gear up
NAV
- NAV of an investment trust is equal to the total value of all the investments within the trust, less any liabilities that the trust may have
1. Diluted - Assumes that all outstanding warrants and convertible loan stock are exercised
2. Undiluted - Ignores outstanding warrants and convertible loan stock
When share price is lower than NAV, it is trading at discount. They are buying the underlying assets at a lower price. Vice versa
CGT - not liable to pay CGT
Hurdle Rates
Hurdle rates indicate that companies investments must grow by x amount each year to pay back
- Current purchase price
- Pre determined redemption value
Negative hurdle rate means that there are already surplus assets and the total investments can decline in value
Asset Cover
Measures companies ability to meet or cover redemption price
1 means exactly cover
0.5 means half will be covered
